German magazine Bild (equivalent to The Sun in the UK) has ruffled Greek diplomatic feathers this week. In an open letter to the Greek PM during his trip to Germany, Bild pointed out some of the differences between the two countries: “Here, people work until they are 67 and there is no 14th-month salary for civil servants. Farmers don’t swindle EU subsidies with millions of non-existent olive trees.” Bild makes its point with characteristic Sun subtlety, but news of protests in Spain , Portugal and Greece against raising the retirement age to 67 reminded me how some citizens of those countries have yet to accept responsibility for their own futures. Spanish civil servants enjoy employment for life - it’s virtually impossible to get fired. They also enjoy a 13th month extra salary - (not performance-related) . Meanwhile, tax evasion is a national pastime and the tax-office (staffed by civil-servants, remember) only go after the easy targets - individuals and businesses who are already paying tax. Spain needs pension reform, employment reform and tax reform - but I doubt whether Zapatero has the stomach or backbone for very much of that. (Steps down from soapbox) Mark Stucklin reports on how the Spanish property market grew at the end of 2009 . It’s not a massive uptick, but it’s better than a further decline. Looking at the number of estate agents advertising on Kyero.com, we reached ‘bottom’ during September last year. Since then the number of advertisers has steadily increased - and we’re now back to the same number as this time last year. Regarding traffic to Kyero.com, we’re now over 50% up - a doubling of traffic in January and February this year compared to the same period last year. If what’s happening with Kyero is an early indicator of what’s happening in the Spanish property market (and I think it is), we can expect Q4 2009 to have marked the bottom of the Spanish property market - in terms of volume of transactions at least. The rest of this week’s news centred around the fragility of the Spanish economy and I’ve included the most enlightening articles this week. The best, I think is from the NY Times - a well reasoned and comprehensive explanation of the challenges facing Mr Zapatero. Martin Dell, Kyero.com

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We’re Past the Bottom of the Spanish Property Market

There was a small uptick in Spanish housing sales during the fourth quarter of last year, according to data released today by the Ministry of Housing. Small, maybe, but enough for the Government to get excited about. “The transactions in the fourth quarter represent a rise of 4.1% with respect to the same period last year, this being the first year-on-year rise since the fourth quarter of 2006,” goes the first sentence, in bold, of the Ministry’s press release. In fact, if you just look at the ordinary housing market, the uptick was even better. Excluding social housing there were 116,664 house sales in Q4, a rise of 5.5%. Regrettably, that’s where the good news ends. Take the year as a whole, there 413,112 transactions last year, a fall of 19% compared to the previous year, and a whopping 46% down on 2007. Even the Q4 was down 33% compared to 2 years ago. Some regions did better than others. Looking at a selection of regions popular with holiday home buyers, the inland province of Teruel suffered the most in 2009, down 36%, followed by Las Palmas in The Canaries, down 32%. At the other end of the scale, Spain’s two big cities did the best, down just 1.7% in Madrid and 3.9% in Barcelona. The small national uptick in Q4 that got the Ministry excited was almost entirely driven by big increases in Catalonia and Madrid (Barcelona +35%, Madrid +41%). Why the big surge in home sales in those two cities in the last quarter of 2009? I don’t know. But I wouldn’t be surprised if it had more to do with banks shifting Spanish property around their balance sheets than families buying homes to live in. Story from Mark Stucklin

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Spanish Property Market Grew Q4 2009

The Ministry of Development has just released some statistics that help illustrate the severity of Spain’s construction boom and bust. What is worse, there is no quick solution as much of the trouble is stored up in a new homes glut that will take years for the market to digest. The new figures show that 387,000 new homes were finished last year, despite a property market crash already into its second year. Compare this to the 220,600 new home sales recorded by the National Institute of Statistics for 2009, and you get an over-supply of around 166,500 new homes that joined the glut of new homes languishing on the market in search of a buyer. As a result there might now be something like 1.1 to 1.2 million new homes on the market, the equivalent of the entire housing stock in Madrid. BBVA, one of Spain’s largest banks, put the figure last year at 1.1 million, to which we need to add the new 166,442 finished and not sold in 2009. The developers’ association and the Ministry of Housing are more optimistic in their estimates of between 700,000 – 750,000 new homes on the market, but even at that level it will take years for the market to absorb. How much is too many new homes? It all depends on how many new households start each year, as new household formation drives demand for new homes. Last year, there were around 225,500 new households formed in Spain, down from 300,000 plus p.a. in the boom years. New household formation surged as immigrants flooded into the country and changing demographics and life-style choice (for example and increasing divorce rate) pushed up the demand for housing. But even at the boom level of 300,000 new households a year, it is now clear that Spain was building way too much Spanish property . In 2006, for example, there were 865,500 planning approvals, (though not all of them went on to become housing starts). And in 2007 there were a record 641,500 housing completions. Now even if you assume that demand for second homes was a generous 200,000 per year, Spain was still building something like 200,000 or more excess homes per year. Now they are idling on the market, tying up capital, and dragging down the Spanish economy’s productive potential. At least supply has finally adjusted to demand, though the astonishing collapse in new residential construction is creating economic havoc (a collapse in new building is just as bad for the economy as too much building). Residential planning approvals last year were down to 110,000, the lowest level since the present data series began, and lower even than the 1970’s, when the population was much smaller. A couple of examples will illustrate how severe the shock has been. In Malaga city (550,000 residents), planning approvals have fallen from 7,500 in 2003 to 800 last year. And in Madrid, the Spanish capital, they have fallen from 35,000 in 2003 to 3,375 last year. That’s a drop of almost 90%. Therein lies the key clue to Spain’s serious economic problems. Story from Mark Stucklin

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Spanish Property Boom & Bust

There were two chinks of light permeating the same old economic gloom in this week’s Spanish property news. First, even though Spain is still officially in recession, consumption in Spanish households increased for the first time in two years. This is still a far cry from a booming economy - but at least it’s a move in the right direction. Second, Despite the news that mortgage lending is down 34% , news of competitive 100% mortgages could be just what the market needs to catalyse Spanish property buying again. One other piece of news which I’ll stick my neck out and interpret as ‘good’ is that the Spanish protests organised against raising the retirement age by two years have been poorly supported . I have no particular feelings either way about the wisdom of this pension reform - but I do feel strongly that striking is the very worst thing for Spain’s fragile economy. Yes, the politicians messed up. Yes, they should be held accountable. Yes, they should find workable solutions to revitalise Spain’s economy and reverse the spiralling unemployment rate. But striking won’t make those things happen - it will only delay them. For their part, Spain’s politicians are playing ‘fast and loose’ with the media. When speaking to international journalists and investors, they emphasise the austerity of the country’s economic plans - in an attempt to sooth investor nerves and cement Spain’s line of affordable international credit. Meanwhile in Spain, these same politicians are emphasising how it’s ‘business as normal’ and that there will be no significant cuts in public spending and no erosion of benefits. The upshot of this - since we live in an age of Google translate and the Internet - is that neither foreign investors, nor the Spanish people have any faith in anything the government says. They’re clearly ‘bending the truth’ at least 50% of the time, if not 100%. Over on the Kyero blog, we’ve discovered a way of getting Google to send you property alerts - even when the web site you’re using doesn’t offer that functionality. We apologise for annoying you with our signup forms, and we ask whether translating property descriptions really makes sense? If you have an opinion about these topics, please leave a comment and join in the conversation. Martin Dell, Kyero.com

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Spain: Two or Three Reasons to be Cheerful

Spain tries to hide under the smokescreen of an International conspiracy, TINSA is revealed as not-quite-so independent after all, and two pieces of good news for Spanish finances. In a bizarre twist this week, Spain hit out at English-language news agencies conspiring to bring down the Euro and the Spanish economy. As the writer of The Zapping of Zapatero in the Economist answered: “To this piffle the best retort is: grow up”. Mr Zapatero, however, continues to insist that Spanish economic recovery is near - something that economists outside the country have a hard time agreeing with because the Spanish government haven’t fleshed out their recovery plans. However, two pieces of good news for the Spanish economy broke this week - shoring up international confidence in the country. First, Spain enjoyed a strong bond issue - raising €5 Billion. A bond is basically an IOU from the Spanish government and, the fact that it sold out quickly is a very practical demonstration of how confident the world’s financial markets are of Spain’s ability to repay that debt. Second, the International Monetary Fund stated that Spain is not Greece . A spokesman said: “Spain has robust economic statistics and institutions with a solid history and credibility”. It seems that despite the constant news and rumour-mongering, investors are more than willing to continue investing in Spain - all conspiracy theories aside. Moving on from the world of Spanish politics and finances, please check out Nick Snelling’s new article: What the Spanish Coastal Law Really Means . If you are thinking of buying a Spanish property anywhere near the sea, it’s important to be ware of this fuzzy piece of legislation. Last week, I sang the praises of property valuations company, TINSA. Chartered surveyor, Campbell Ferguson was kind enough to email me this quote from Fuster Associates, a legal firm in Murcia: The biggest valuation companies, such as Tinsa and Tasamadrid, are connected with savings banks and the banking industry; “hence, every time they value a home at less than its former value, their own assets depreciate”. To put it another way, “to admit that homes have come down in price is tantamount to admitting that the assets which back up loans have fallen.” Hmm, so maybe my assertion that one of TINSA’s advantages is that they’re independent is suspect - that’s certainly true in the opinion of this Spanish commentator who said: “You trust the valuations of a company funded by more than 30 savings banks? Bad analysis.” I admit that the independence of TINSA may be questionable - but I do stand by the fact that their index trend is the only data series which tallies closely with what we have observed in practice. Moving on .. We started a new Kyero blog last week to let you know what we’re up to behind the scenes here. Some of the posts are quite technical, some aimed at estate agents, others at the general public. Some talk about functionality we’re developing, and others about problems we’re trying to fix. I hope you find the posts interesting and decide to comment and have your say if you feel strongly enough about a particular subject. Martin Dell, Kyero.com

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No Spanish Conspiracy Theory Required

Recent periods of heavy selling in the Spanish stock market, in the wake of fears that worries over Greece will spread to other European nations, is reportedly being investigated by the country’s intelligence service. The unit of the National Intelligence Center that deals with economic intelligence has spent the last few weeks discussing the matter with Spanish companies and the stock exchange as well as other experts, according to a report in El Pais’s English edition on Monday. An official could not be reached for comment. The newspaper said the investigation is looking at whether there was any collusion in attacks by investors and the hostility shown by some sectors of the U.K. and Spanish press. Over two weeks ago, Spain’s IBEX-35 saw its biggest one-day loss since 2008, in the wake of worries over Greece and fears Spain might have similar economic worries. See related story on Spain The government has been battling a tidal wave of bad news and sentiment from inside and out. Prime Minister Jose Luis Rodriguez Zapatero has hinted on a number of recent occasions that criticism by the U.S. and British media is part of an effort to undermine the euro. El Pais said in private he has been taken aback by just how aggressive some parts of the foreign press have been with Spain. Paul Krugman, the Nobel prize winning economist columnist with the New York Times, is practically persona non grata for his comments on Feb. 4 after a blog posting that said Spain was the euro zone’s biggest trouble spot. Salgado responded by saying that analysts and media from outside the euro zone did not understand how the bloc worked. Krugman was at it again on Monday, writing in his column for the New York Times, that Spain’s core economic problem is that prices and costs have gotten out of line with those in the rest of Europe and there isn’t much that the government can do to make it better, as its economy is locked into the euro. “This is McCarthy-style witch hunting,” said analysts at UBS in a note to investors on Monday, in response to the report in El Pais. “Spain was a victim of joining an inappropriate monetary union and a Ponzi scheme housing market.” Story from Market Watch

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Spanish Intelligence Investigating Market Slurs

In a somewhat shocking and worrying statement, a leading Spanish lender has declared the country’s real estate sector is ‘bankrupt’. According to Santos Gonzalez Sanchez, president of the Spanish Mortgage Association who speaks on behalf of the country’s mortgage lenders, there is so much debt in the industry that finance for property development has effectively dried up. ‘The real estate sector is bankrupt,’ he said, pointing out that Spanish developers had a combined debt of €324 billion in the third quarter of 2009, the equivalent of around 30% of Spanish GDP, according to figures from the Bank of Spain. The interest bill alone is around €15 billion a year. More than 50% of the debt was used to buy land for which there is now no market. ‘Whilst those plots of land are not properly valued, the financial system can’t start afresh and won’t be able to finance new homes,’ Gonzalez told the Spanish press. ‘The viability of the Spanish property sector is in question and it is putting the financial sector in danger,’ he warned. Gonzalez added that something drastic needs to be done. He said that the Government or the Bank of Spain needs to take a lead in tackling the problem instead of ‘looking the other way’. Some experts believe that Spain needs to create a ‘bad bank’ where all the toxic real estate loans can be dumped, freeing the banks from their bad debts and enabling them to start lending again. Gonzalez also warned that the situation has wider implications as the situation with the developers is pushing up the cost of credit for the whole Spanish economy. ‘The developers’ debts affect the credit ratings of the financial institutions, with all the consequences that has for a sector that still hasn’t fully recovered its liquidity. The financial system will have to explain how long it can bear this situation,’ he added. Experts are also warning that Spanish banks may have to deal with a tidal wave of repossessions this year, with big implications for the property market. The auctions banks normally use to dispose of repossessions are struggling to attract buyers, as the credit crunch has hit even the opportunists who traditionally bought at auction. Spain’s General Judicial Council forecasts 180,000 foreclosures this year, up from 114,958 last year. With few buyers at auction, banks will have to take back the properties onto their books at the write-off price of 50% of valuation, which implies recognising a loss. That could have big implications for the banks and the property sector in general. The big question is what impact this new batch of repossession, the equivalent of 15% to 20% of the current inventory of property for sale, will have on the market. These properties could end up dumped on the market at write off values that will send prices down. Story from Property Wire

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Spanish Property Industry ‘Bankrupt’?

Euro lobby groups are making the most of Spain’s new prominence on the world stage. They’re making sure that Mr. Zapatero is painfully aware of Spain’s continued property-related human rights violations. Euro MP’s have renewed their threat to impose sanctions over Valencia’s ridiculous land-grab laws. And, in another article not included in this week’s newsletter, MEP Marta Andreasen asked how Mr. Zapatero’s plans for the EU presidency could be credible when his government is unable to solve property abuses in his own country. Mrs. Andreasen ended with a warning: “This parliament has only threatened to block payment of subsidies to Spain, but I can assure you that if this situation is not resolved during the Spanish presidency , I will do everything I can to turn this threat into action.” As Spain has just six months font and centre on the EU stage, let’s hope that Mrs. Andreasen’s bite is at least as ferocious as her bark. Mark Stucklin has an interesting perspective on the recent Economist report that Spanish property is 55% overvalued . He points out that this conclusion is based on official government data - which we all know is highly suspect. He concludes that “If The Economist used real transaction price figures it would find that Spanish property prices are much closer to fair value than they think.” Last week, I mentioned the forthcoming A Place in the Sun Live show at London’s Earls Court from 26th to 28th March. As promised, you can now avoid the £10 entrance fee and get free tickets to the event . The show will feature thousands of properties for sale, by hundreds of exhibitors from more than 40 countries worldwide. And with homes from less than £20,000, there really is something to suit almost every taste and budget. Finally, we’ve been promoting a car-rental booking engine called Car Trawler for a while now - and last week, I was able to put them through their paces. They claim to find the best car rental rates worldwide by automatically doing the leg-work for you. Compared to the best rates offered by EasyJet, Car Trawler offered me a reduction of almost 25% - £12 per day compared to EasyJet’s £16. A total saving of £28 over the week’s all-inclusive rental. If you intend to rent a car this year, why not use Car Trawler to get some quick comparison prices? Martin Dell, Kyero.com

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Spain: Front & Centre of the EU Stage

Risk measurement agency Moody’s said Spanish recession will continue until the second quarter of 2010. These forecasts are contained in a statement, arguing that the weakness of economic activity, coupled with rising unemployment and slower income, will “depress” the residential Spanish property market, which estimates that prices have fallen 9, 5% from their highs in 2008. Risk measurement agency Moody’s said the Spanish recession will continue until the second quarter of 2010. Spain as a country will take the longest to shed the shackles of the economic recession in the euro area. Furthermore, it believes that in this whole year, GDP will grow only 0.2 per cent while unemployment will exceed 19 percent of the workforce. These forecasts are contained in a statement, arguing that the weakness of economic activity, coupled with rising unemployment and slower income, will “depress” the residential property market, which estimates that prices have fallen 9, 5% from their highs in 2008. Oversupply of housing in Spain, with about 1.5 million vacant homes will lead to a “long process of adjustment” for the housing market, warns Moody’s. The agency also said that low interest rates have helped many of those with mortgages to cope with the economic “turbulence”, but warns that the faster recovery in the rest of the euro zone can make the price of housing rise later this year, which “may be premature” to Spain. Despite this outlook, the agency believes that the market for mortgage-backed securitizations (RMBS) has stabilized in November, although the outlook remains negative. Story from Barcelona Reporter

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Spanish Recession to Persist in 2010

Two more regional Spanish savings banks, Caja Duero and Caja Espana, agreed to merge on Monday, Spanish news reports said, as the pace of consolidation in the sector gathers pace amid the country’s recession. The two banks, both based in the northern region of Castilla y Leon, reached the deal late on Monday after months of negotiations. Spanish newspapers said the merger would be ratified by the boards of directors on Tuesday morning. Last month, two regional Spanish savings banks, Unicaja and Cajasur, based in the southwestern region of Andalusia, also agreed to merge, And in November two savings banks based in the northeastern region of Catalonia, Caixa Penedes and Caixa Laietana, announced that they had decided to join forces. Spanish banks got off relatively lightly from the subprime mortgage crisis in 2008, as the country’s strict rules meant they did not invest heavily in the high-risk loans that hurt financial institutions elsewhere. But many, especially smaller unlisted saving banks usually controlled by regional politicians, were badly hit by the collapse of the once-booming Spanish property market, both through loans to developers and mortgages. The Spanish economy, Europe’s fifth-largest, entered into recession at the end of 2008 as the international credit crunch hastened a correction which was already under way in the property sector. Spain’s GDP contracted 0.3 percent in the third quarter, its fifth straight quarterly decline. Story from Inquirer

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More Savings Bank Mergers in Spain